A non-blogging friend points me to the announcement today of Maryland’s subsidy bidthat puts Montgomery County into one of the 20 finalist slots. Shockingly, Governor Larry Hogan (R-MD) put in a bid that would pay Amazon almost the entire cost of its facility, depending on what you think a proper discount rate should be now (hint: low).
“HQ2,” which Amazon has stated will amount to an eventual $5 billion in investment, will receive a subsidy package worth over $5 billion in nominal value (but not necessarily present value) from Maryland. The largest element in this package is a jobs tax credit of 5.75% of wages for up to 17 years, on salaries averaging $100,000 per year (minimum $60,000, maximum $500,000). According to the story linked above, Amazon would max out this incentive with just 40,000 jobs. To simplify the math, this element would pay up to $5750 per year to Amazon X 40,000 employees X 17 years, or $3.91 billion.
Other elements of the package include state and local property tax credits (local governments would be 50% reimbursed by the state for their share), a sales tax exemption on construction materials, and an unspecified amount of infrastructure. According to the linked story, there would be “billions of dollars” in transportation upgrades in the state, though the article does not indicate how much would be Amazon-specific and how much would go elsewhere in the area.
Why do I say this offer is shocking? 1) It normalizes not just billion-dollar incentive packages, but multi-billion subsidy awards. Foxconn got $4 billion last year from Wisconsin, according to the Good Jobs First Megadeals spreadsheet, October 2017 update. Now, Amazon has received at least three (see below for St. Louis) offers of over $5 billion. In the European Union, a $1 billion incentive is virtually impossible even in the poorest EU regions, and absolutely impossible in cities as wealthy as the 20 finalists here. Indeed, few if any of the 20 would be allowed to offer any subsidy whatsoever. 2) What is possibly even worse, it normalizes paying subsidies greater than the cost of the investment (100+ % aid intensity, in terms of European Union state aid rules). Seriously, if a government is going to pay more than the entire cost of the investment, it should have a legitimate, large ownership stake, rather than using “investment” as a euphemism for “subsidy.” 3) Have none of these cities noticed that unemployment is at historically low levels? That’s precisely a reason not to give away the store. Let’s look at the state unemployment rate for the 20 qualifiers in November 2017:
Texas: 3.8% (two finalists)
North Carolina: 4.3%
Pennsylvania: 4.6% (two finalists)
New York: 4.7%
New Jersey: 5.1%
Ontario: 5.5% (December 2017)
Washington DC 6.4%
Source: For U.S. states and DC, Bureau of Labor Statistics, Local Area Unemployment Statistics. For Ontario, Alberta Government Economic Dashboard, published 5 January 2018.
I’m not the only person who is shocked. Greg LeRoy, executive director of Good Jobs First, told Middle Class Political Economist: “As a Maryland taxpayer, I am aghast that Gov. Hogan would propose to subsidize Amazon’s new headquarters 100 percent with public dollars. I refuse to pay higher taxes for a company one-sixth owned by the richest person on earth.”
LeRoy also pointed out that the St. Louis bid was released to the public last week after the city failed to be named a finalist. According to the St. Louis Business Journal, a partnership of the state of Missouri, the city of St. Louis, St. Louis County, the state of Illinois, and Illinois’ St. Clair County offered Amazon $7.1 billion in subsidies, edging out Newark’s $7 billion bid as the largest offering known so far. As with the Maryland bid, this is shocking for all the same reasons. Indeed, Missouri had one of the lower unemployment rates in November 2017, a mere 3.4%.
The Maryland and Missouri subsidy packages are simply horrifying. I wrote over six years ago that state and local subsidies were “more out of control than ever.” In these six years, we have already seen five $2+ billion incentive packages, with at least one more on the way, and companies emboldened to request not millions, but billions of dollars of subsidies. I fear we are looking at a new ratcheting up of the investment attraction wars.
Ain’t unregulated Capitalism great? Pit one state’s public taxes against another… divide and conquer always works. Don’t blame Amazon though… blame our laws and State’s rights.
Why not blame Amazon? Amazon is engaging in old-fashioned rent-seeking, using economic power to gain profit in the political arena. It has already received $1 billion in subsidies for its many smaller facilities, according to Good Jobs First. It has engaged in monopolistic and anti-competitive practices from day 1. And it’s big enough to affect the laws, so it’s no excuse to say it’s just following the law.
“this element would pay up to $5750 per year to Amazon X 40,000 employees X 17 years, or $3.91 billion.”
This is not accurate. To the extent they are tax incentives, that represents forgone taxes. Those taxes for have been foregone anyway if Amazon didn’t locate there.
In other words, if Amazon DOES move there, the state will forgo some taxes. If Amazon does NOT move there the state will not collect any of those taxes either. So the net cost is zero. The net benefit is all the other taxes collected from the non exempt companies and economy that will flourish around Amazon HQ2
Then there must be a new fangled form of rent seeking, huh, since the old fashioned kind must have gone the way of the dinosours, I guess, and besides our laws say rent seeking is perfectly ok.. what ever the traffic will bear.
@Sammy, that is true for any one state, but not for all states together. Amazon has to build the plant somewhere, so the taxes will be generated even if no state foregoes the taxes. Fallacy of composition.
@ Longtooth, I’m not quite sure what you’re new-fangled vs. old-fashioned point is. In any event, there are lots of things which are legal but immoral. I advocate changing the laws to regulate these incentives, as the European Union has done with great success in its rules on “regional aid.”